A federal magistrate has recommended that a lawsuit brought by Sonoma County pension funds and several other large government organizations against six major banks be certified as a class action, meaning the banks could owe money to a growing number of complainants across the country.
The recommendation is a small step in a long legal battle that began in 2017.
The Sonoma County Employees’ Retirement Association, three other public pension funds and a company called Torus Capital filed a lawsuit in August 2017 accusing the banks of colluding to block access to financial information about equity loans that allegedly could benefit from the funds.
The defendants in the lawsuit are Bank of America, Goldman Sachs, JP Morgan, Morgan Stanley and UBS.
Credit Suisse was also a defendant, but settled $81 million in February, said Julie Reiser, partner at Cohen Milstein, a New York attorney representing the plaintiffs.
Stock lending programs allow investors to lend their stocks to borrowers, who can use them to secure other investments or to cover short sales in companies that are going down in value.
In the equity loan market, lenders and borrowers do not interact directly with each other but rather must go through an intermediary, which is where banks come in.
The costs charged by intermediaries are not readily available to all who participate in the market, according to the lawsuit.
“These banks are in the middle of almost every stock lending transaction and take a massive cut from almost every transaction, while keeping the size of that cut largely hidden from other participants in the transaction,” the lawsuit states.
The lawsuit argues that the six banks conspired to boycott, acquire or otherwise block companies offering services to help make this data more readily available.
Banks make more than $9 billion a year from the equity loan market, according to the lawsuit.
“They have very little risk,” Reiser said. “And yet they are able to secure these massive profits.”
The Sonoma County Pension Fund administers retirement benefits for more than 5,478 Sonoma County retirees and 4,066 current county employees, according to the agency’s website.
The plaintiffs are seeking damages and more transparency in the stock market, Reiser said.
The case is over and in court, but the latest development came on June 30, when U.S. Magistrate Judge Sarah Cave recommended that the class action be certified for any person or entity with at least 100 transactions as a borrower or lender with the defendants. The class applies to transactions between January 1, 2012 and August 16, 2017, as recommended by Cave.
A judge in the United States District Court for the Southern District of New York must now decide whether to adopt Cave’s recommendation, Reiser said.
Banks will have until October to challenge the recommendation, Reiser said. A final decision could come towards the end of March next year, she added.
“They take a long time to resolve,” Resieser said.
“A trial date could be set in two years, for example,” she added.
You can contact editor Emma Murphy at 707-521-5228 or [email protected] On Twitter @MurphReports.